Preserving legal professional privilege when dealing with a litigation funder

11th July 2017

When dealing with a litigation funder a common concern is whether communications with a litigation funder will attract legal professional privilege and as such, will be protected from production in any court proceedings.

In light of some recent decisions, it is timely to re-examine the issue of legal professional privilege and litigation funders. These cases involve unusual circumstances. Generally, the communications between a plaintiff or its lawyers and a litigation funder will not be relevant to any issue in the proceedings and so will not be liable to orders for production.

In the decision of Hastie Group Ltd (in liq) v Moore [2016] NSWCA 305 the NSW Court of Appeal was required to consider whether an unsigned expert report prepared and provided to a prospective litigation funder to assist that litigation funder in making a decision as to whether to fund the proceedings was firstly, privileged and if so, secondly whether that privilege had been waived by the provision to the litigation funder.  This issue arose because the plaintiff sought to rely on an affidavit explaining the basis for which it was seeking an extension of time in the proceeding which included as a reason for the delay, a description of its attempts to secure litigation funding.

In determining whether the expert report was privileged, the court had to consider whether it was prepared for the dominant purpose of the client being provided with professional services relating to the proceedings, or, as the respondent argued, it was actually prepared to assist the funder in its decision as to whether to provide litigation funding. Based on the engagement letter to the expert, the court was satisfied that the report had been prepared for the dominant purpose of the client being provided with professional legal services related to the proceedings and as such, was privileged.

On the question as to whether privilege in the expert report had been waived, the respondents argued that:

  1. Privilege had been waived in the report by its provision to the funder which was inconsistent with the maintenance of the privilege; and
  2. Privilege in all the communications between the plaintiff and the prospective funder had been waived as the plaintiff had put its approaches to litigation funders in issue (by relying on this as a reason for its seeking of extensions of time in the proceeding).

The Court of Appeal rejected these arguments reaffirming the principle that there will only be a waiver of privilege where there is an inconsistency between the disclosure and the maintenance of the privilege. Such inconsistency is unlikely to arise where it is only the fact of the privileged communications (as opposed to their contents) which is disclosed and where the disclosure to a third party is made on a confidential basis.

In the case of IOOF Holdings Ltd v Maurice Blackburn Pty Ltd [2016] VSC 311 the court again had to consider whether communications between a law firm and a funder were privileged. In this case, the law firm and the funder exchanged information in relation to the potential class action to be brought by shareholders in IOOF against the company. These communications included advice as to the prospects of the claim and how the claim would be run including the budget as well as the negotiation of the commercial terms of the funding agreement.

IOOF brought proceedings to seek to restrain the lawyers from acting in and the funder from funding, the class action on the basis that the proposed action would use information which was confidential to it. For this reason, the actual information which was in the possession of the law firm and the funder and their communications regarding the claim was in issue.

Class actions are different to other legal claims as they often do not arise by reason of a client approaching a law firm for advice. Rather, class actions may develop when a lawyer identifies a possible claim. That lawyer or law firm may approach potential litigation funders before contacting potential class members in order to bring the claim.

At the time of the communications between the law firm and the funder, the IOOF class action was speculative and as such, there was no “client” as the firm had not signed up any members of the potential class action. IOOF argued that:

  • as there was no client, there could be no client legal privilege pursuant to s118 of the Evidence Act; and
  • as the class action was speculative, there were no actual or anticipated legal proceedings pursuant to s119 of the Evidence Act.

The court rejected these arguments and found that in respect to the advice provided, the communications between the law firm and the funder attracted client legal privilege pursuant to s118 of the Evidence Act on the basis that the litigation funder was the client of the law firm. This was even though there was no traditional client relationship; there was no written retainer and no fees were paid by the litigation funder to the law firm. The fact that the litigation funder had requested the legal analysis was, in the view of the court, sufficient to establish a lawyer-client relationship.

The court however found that the following documents did not attract legal professional privilege:

  1. The documents which related more to the mechanics of how the claim would be run were not privileged as these did not constitute “advice” necessary for a claim under s118 and in addition, could not attract privilege under s119 as this section requires a client who is a party to an anticipated or pending proceeding, this was not the litigation funder so the funder could not claim litigation privilege.
  2. The communications relating to the negotiation of the litigation funding agreement were not privileged. The court indicated that these may usually attract litigation privilege but such privilege must be claimed by a client within the meaning of s119 (not a litigation funder).
  3. The litigation funder’s papers prepared for its investment committee were not privileged as these were not prepared for the dominant purpose of the provision of legal advice.

So, what can be done to ensure that communications with a litigation funder attract and retain legal professional privilege?   We have put together this checklist:

  1. Always enter into a Confidentiality Agreement with a litigation funder before providing them with information. This assists in characterising the communications as “confidential” within the meaning of s118 and s119 of the Evidence Act.
  2. It is preferable to give the litigation funder copies of advice provided by the lawyer to its client rather than prepare separate communications to the funder which may have the dominant purpose of assisting the funder to make a decision whether to fund rather than advising a client.
  3. In the class actions context, the legal team should try to identify and enter into a retainer with a member to the class action early on prior to engaging on a substantive level with the funder. If no client has been signed up, be aware that it is likely that any communications with a funder will not attract litigation privilege under s119 of the Evidence Act.
  4. Ask a funder to limit its preparation of any internal papers in relation to the claim.

The circumstances in which communications with a litigation funder are liable to production in proceedings should be few and far between. However, following this checklist will minimise the risk of this occurring.


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